Getting Rid of Mortgage Molasses

The future of mortgages holds tremendous promise. However, today’s industry vision for how to leverage emerging mortgage technology is far too fixated on cost reduction instead of creating of customer value. Instead of figuring out how to automate old processes, what if we focused on solving practical customer problems like being able to apply for and close a mortgage in a handful of days, rather than weeks or months? What if the concept of applying for credit was old news, because members are always approved? What if credit monitoring and optimization was part of that ongoing relationship?

Mortgages close, on average, six times slower than the regulatory environment requires. It’s time to modernize the 40-plus-day home loan process. Will the industry continue to duct tape efficiency-oriented point-of-sale technology on top of brick-and-mortar-oriented operations, or will we stop dragging our feet and pursue with determination more visionary ideas?

Fintech companies are all the rage; they’ve inspired a sense of hope for real innovation, despite the molasses-paced change we’ve seen in financial services compared to other industries. But prior to this external “giddy-up” from fintechs, financial institutions had not gone far down the path of imagining better business models, creating new customer value or even significantly speeding up lending processes. 

For years, financial institutions have been trying to determine whether fintechs are a threat or their salvation. For the most part, everyone has finally come to realize that we need to focus on doing what we do well and working together. Fintechs can’t take over banking, and financial institutions are too old school to rapidly acquire new tech competencies on their own. Time will tell, but more than likely, fintech partnerships will lessen the impact of crippling strategic risk related to slow-moving change in mortgage lending—at least until blockchain-based innovation disrupts the existing financial order in more profound and unpredictable ways.

Reimagining the mortgage space won’t be so much about digitizing basic transactions, in the long term. It’ll be about creating new capabilities that evolve both what customers expect and how we fundamentally approach the relationship. In the sterility of the digital space, how do we create and maintain customer intimacy? What should the goals be for innovation, outside of simply decreasing the cost of originating loans?

Up to this point, consumers have accepted the fallout of the intense regulatory regime and scrutiny, biding their time as weeks or sometimes months pass while they work to secure a home and close the transaction. Regulations are essential to counteract criminal and shady business practices and protect the consumer. But right now, we’re layering moderately innovative technology on top of unbelievably inefficient processes and that’s not good enough. There would be nothing special about being able to order products through Amazon if it took an average of six weeks of deliver after purchase. That’s what we’re doing with mortgages.

Customer expectations today are heavily influenced by what they experience in other areas of their lives, like retail shopping online. The convenience that ecommerce companies are achieving has shifted how people think about shopping; that genie won’t go back into the bottle. We are so close to being able to order a pizza poolside by having a conversation with an artificially intelligent Bluetooth device and having a drone drop it on our backyard coffee table 20 minutes later. Members won’t wait around forever for credit unions to catch up. 

The financial world may be taking note of developments, but we’ve slow to decide on how to bring our commoditized product suites, thousands of branches, change-resistant cultures, and business models that prioritize self-protection into the future. With the advent of machine learning and AI, cryptocurrencies and decentralized ledgers, impressive disclosure integrations, and the ubiquitous and lightning-fast smart devices in everyone’s hands, there is more that can and should be done, today.

At ONYX Direct, we’re asking questions like:

• What if consumer credit was an active relationship where clients were always approved, and what new kinds of problems could we solve through that?
• What if closing a home purchase took only a handful of days, rather than the industry average of a jaw-dropping 42 days
• What if the customer didn’t have to foot the bill through bad pricing for these antiquated and painfully slow compliance processes?
• How can we watch the market for tools now in development to create mutual value for buyers and sellers, in ways not broadly deployed previously?

The most exciting part of working in mortgage lending today is knowing that this industry is ripe for change. Real disruption happens when the existing economic order is replaced with new products or delivery channels, when it permanently changes customer expectations, and when it is facilitated by completely new and better business models. 

Lucas Filinski is founder and CEO of ONYXDirect.com and its parent company ONYX Lending in the San Francisco Bay area. Kirk Leverington is VP/corporate strategy at ONYX Lending.